Friday, April 13, 2018

Despite improvements in the economy and wage growth, research shows that Americans are still falling way short when it comes to saving money. How come?

The reason is because saving money really has nothing to do with how much money we’re bringing in. According to a blog for Psychology Today by Utpal M. Dholakia, Ph.D., the George R. Brown Professor of Marketing at Rice University, it’s all about cultivating a habit of saving money, which is very difficult for most of us. Dholakia offers this four-step approach for making saving money a regular habit:

1. Set a specific goal for an emergency fund. In order to make something a habit, you need to start with a specific goal, as that goal will serve as the underlying motivation for your behavior—which in this case, is saving money. So set a specific dollar amount for your emergency fund and start working toward it. Dholakia suggests to think back to when you first learned to drive; the goal was very clear—to get your driver’s license—and, therefore, the steps to get there were crystal clear, as well.

2. Save something—anything—every single day. Habits require repetition, so even if you’re saving a dollar a day, it’s a crucial step to take in forming your money-saving habit. While this goes against the popular advice of automating savings, Dholakia explains that taking the act of saving into your own hands is essential to helping form the habit.

3. Make sure your progress is visible. It’s essential to literally see the progress you’re making. Whether it’s a glass jar on the counter or checking your online savings account every day, you need to see the positive results in order to ensure your habit continues.  

4. Always spend less than you make. According to Dholakia, this is the most difficult step of all four. The biggest reason people don’t save money is because they don’t have control over their spending. Gaining that control starts with spending less than you make. Once you adopt this mindset, you will begin to find that spending money doesn’t feel good anymore.

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